Building blocks
Downtown Pittsburgh apartments are filling up again, with more construction on the horizon
Downtown apartment units have been filling back up since the beginning of this year as more young people return to the heart of the city even though rent prices are higher now than they were before the pandemic.
The supply of new apartments in Downtown Pittsburgh also is set to explode. According to data from Washington, D.C.-based CoStar Group, multifamily construction activity in the city center is as high as it’s ever been. More than 1,500 multifamily units are in some stage of construction, and close to 3,000 more units are in the pipeline over the next three years.
Not too long ago, the lure of Downtown living had hit its lowest point.
When theaters, restaurants and other nonessential businesses were ordered to close due to the COVID-19 pandemic, many people saw little reason to live in the center of the city. Demand for luxury apartments during lockdowns in 2020 bottomed to a point where some landlords started offering free rent out of desperation to lease units in what had become a ghost town.
Now that the dust is settling a bit, multifamily developers are picking up where they left off and betting big on the rebound of the rental market.
“The Downtown multifamily market is so important to the city of Pittsburgh; they are going to have to make it work,” said Ben Atwood, a CoStar analyst. “This is a city that was really finding its feet right before COVID-19 disrupted the momentum. There’s still a lot of good things happening here. This is a turnaround a lot of people didn’t see happening when COVID19 started.”
While 1,500 units is a big deal for a city like Pittsburgh or Cleveland, it’s a drop in the bucket for some other major cities with thriving urban apartment communities, according to CoStar data.
Denver has 6,400 apartment units under construction; Los Angeles has 4,400; Seattle has 4,000; Phoenix has 5,700; and Salt Lake City is building 3,400.
The effort that started here about a decade ago to build highend apartments in the central business district is finally ripe for developers now that the city is attracting more people — mostly young, unmarried and many working in the technology, education and medical industries — who can afford to spend $2,000 to $3,000 a month on a one-bedroom unit.
With more people living Downtown, the hope is more major retailers like Target — which is moving into the former Kaufmann’s department store on Smithfield Street — and other service providers will be inclined to locate their businesses Downtown.
For as long as he can remember, commercial real estate agent Bryan McCann said the decision to either develop or not develop more apartment units Downtown has had all the nuances of the classic chicken-or-egg debate.
“Who makes the first move? Is it the retailers or the developers?” said the senior vice president of multifamily sales at Cushman & Wakefield, Downtown. “Right now, the developers have decided they are going to build the apartments. They are going to attract individuals to Downtown, and the retail will come from that.”
He said Downtown’s residential population — 6,000 residents and 1,500 units under construction — is approaching the minimum benchmark 7,000 to 8,000 residents major retailers, restaurants and service providers look for when they set up shops in a new market.
“Are you going to put a grocery store Downtown before you hit the residential metric number that you need? Target obviously made the big move and is taking that bet,” Mr. McCann said.
“A lot of people are concerned that we are over-built,” he said. “My personal thesis is we are not. We are actually creating a true live, work, play community. We are actually enhancing that community for the way we are getting ready to move things forward.”
Blending old and new
It’s not always obvious how much residential construction is occurring in the Golden Triangle and nearby neighborhoods.
Instead of demolishing old buildings and erecting shiny new ones, developers have instead created thousands of modern apartment units by gutting the insides of old buildings and repurposing them for multifamily living spaces.
Occasionally, something will get torn down. More often, if the exterior changes, it’s because space is
being added. Jonathan Holtzman, with City Club Apartments, is planning to repurpose the former headquarters of the YMCA of Greater Pittsburgh. He’s building a tower on top of the existing Wood Street structure to achieve 300 apartment units.
The 377-unit Brewers Block apartment complex under construction in the Strip District will also be a combination of old and new. The developer will renovate a warehouse building and construct two new buildings beside it.
The architecture firm for that project, Lawrencevillebased Desmone Architects, also designed the recently completed Kaufmann’s Grand project that includes 311 apartments, two floors of retail, a 410-space parking garage and the 160-room Even Hotel.
Eric Booth, president of Desmone, said his company has thousands of multifamily units either under construction or in the design process. The majority are one bedroom and will rent for between $2,000 and $3,000. He said each project that comes along is seeking to outdo the last one.
Rooftop swimming pools and elevated swimming pools are among the popular amenities. The buildings also incorporate features for social interaction like cafes, coworker spaces and theater roomsin common areas.
“There’s still quite a bit of new construction of apartments. It’s not slowing down,” Mr. Booth said. “We’ve worked on concepts for many sites, primarily in the Strip District, South Side, Lawrenceville, Oakland and the North Shore. We’re now starting to look at more suburban sites, particularly those right outside the city.”
Four-star rental units in the Downtown market took the hardest fall in the darkest days of the pre-vaccine pandemic. Those reported average vacancies of 9.2%. Vacancies now stand at 4.96%, according to CoStar. The vacancy rate is the percentage ofunits that are unoccupied.
Demand for new apartment units is high across the county, according to local real estate professionals, and rental rates are following.
In this region, rents in some neighborhoods have hit record levels. For example, Edge 1909 in the Strip District is renting one-bedroom apartments for more than $3,000. A one-bedroom apartment in the central business district averages around $1,500.
“The central business district still hasn’t hit those levels yet, but we are approaching it,” Mr. McCann said, adding rents in general are back to pre-pandemic levels and in some cases higher.
“We’re still an affordable city to live in,” he said, “but the gap is narrowing.”
Forming a neighborhood
Developers have saved money repurposing old buildings for apartments instead of rebuilding from the ground up. The old structures also can give their project a backstory that links the building to the city’s history, which can be a distinguishing factor in a crowded marketplace.
Partners Daniel Croce and Andrew Reichert spent six years repurposing a historic stable once used by police horses on the North Side. Their project in the Allegheny West neighborhood, Allegheny Stable City Lofts, is set to open Sept. 1. More than half of its 36 units have been leased for prices ranging from $1,450 to $2,450 a month.
“For so long, Pittsburgh has been a place where the growth has been very slow and steady,” Mr. Reichert said. “What we are seeing today is abnormal, but we think it’s good for the city.”
He and Mr. Croce believe the time has come for luxury apartments on the North Side to serve affluent renters who work at Allegheny General and Nova Place, as well as technology companies around the North Shore.
“There’s a ground swell of demand from that kind of tenant profile who wants to be able to walk to work and have that live, work, play dynamic that started to emerge in Downtown pre-COVID19,” Mr. Croce said. “That demand has certainly made its way over to the North Shore and the North Side.”
Their company, Birgo, owns 2,000 apartment units across Allegheny County, mostly in affordable communities where the average rent is $675. The $7.5 million repurposing project was their first foray into luxury apartments. They aren’t concerned another shutdown could throw that market back in reverse.
“I think, in some sense, it’s become inverted,” Mr. Croce said. “People were moving Downtown to be close to work. Now, people are moving Downtown irrespective of work.”
Downtown real estate agent Keane George at SVNThree River Commercial Advisors said the reason Downtown was hit the hardest of any neighborhood during the pandemic shutdown is because its primary function is too heavily weighted toward office use — aside from it also being the most densely populatedneighborhood.
“The pandemic really highlighted that issue,” Mr. Georgesaid. “Downtown was completelyhollowed out once theoffice world shut down.
“That’s why it’s so important that we continue to add the residential component, and that way, we can form a neighborhood within the central business district. Any successful Downtown I’ve ever seen had more than one primary use. Right now, ours doesn’t.”